Without trying to sound crass of course ROE will continue at it's current level he is buying a railroad (
high fixed cost business and a monopoly) it's not like someone is going build a competeing railroad in the same area there will only ever be one and it will always be cheaper than trucking or shipping by air.
This type of thinking fundamentally ignores
the high fixed cost business model and the general history that Ford possesses.
Not exact matches
Because regulatory compliance has a
high fixed cost, small
businesses face a larger per - employee
cost of adhering to government regulations than big companies.
Like many service
businesses, Share makes its money on billable hours; once the
fixed costs are paid, margins on additional calls are
high.
Low
fixed cost,
high margin
business.
With debt financing, the
fixed repayment schedule and the
high cost of loan repayment can make it difficult for a
business to expand while with equity financing, money is invested in the
business in exchange for equity - there is no
fixed repayment schedule and investors generally have a long term goal of return on investment.
He argues in a recent blog post that it may simply be unreasonable to expect several competitors to remain in the wireless market, because the
fixed costs for operating these
businesses is so
high.
With debt financing, the
fixed repayment schedule and the
high cost of loan repayment can make it difficult for a
business to expand while with equity financing, money is invested in the
business in exchange for equity - there is no
fixed repayment schedule and investors generally have a long term goal of return on investment.
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With opportunistic holdings we are often invested in falling knives or
businesses that risk bankruptcy due to large amounts of debt,
high fixed costs or turnaround situations.
Third, a new startup will have
higher fixed costs to amortize over the new
business written.
When a
business has a
high debt to equity ratio, it has imposed on itself a large block of
fixed cost in the form of interest expense, which increases its breakeven point.
Because of the
high contribution margins in this largely
fixed cost business, revenue increases will drive large free cash flow and value growth.
Institutional equity finance is also difficult to access: most venture capitalists and many
business angels will not invest in games because of
high risk levels, low knowledge levels about the industry and
high, largely
fixed costs of due diligence relative to the amount of equity sought.
Thanks to
fixed costs that don't disappear within the
business, we are not surprised to see internal cross-charging at much
higher rates that can be achieved from
high - quality external providers.
This decentralised
business model means «virtual» law firms have lower
fixed costs, and lawyers therefore tend to be paid a
higher proportion of the fees they make than in traditional firms where they are likely to be salaried.
And it may only have begun: recall the NYT review of Free that noted: it can be extremely hard to survive in a
business with
high fixed costs, low marginal
costs and relatively easy entry.